Either way, it will be interesting to watch—
because crypto currencies challenge the very foundations of the
government-banker axis. They challenge banker ability to create and
control the money supply and, for those who use them, truly
anonymous crypto—which excludes Bitcoin itself—makes
taxation truly voluntary.

While Bitcoin and its many relatives (see below)
are each individually limited by math, the number of different brands
is unlimited. This means the aggregate supply of cryptocoins is
virtually unlimited.

Thus the prognosis isn't good: The aggregate is
what counts and since it is, for all intents and purposes, unlimited,
as the aggregate supply approaches infinity, by the law of supply and
demand, the value approaches zero. This drop in value would be
experienced as price inflation of anything purchased with crypto.
Likely massive price inflation.

But a lot of interesting history can take place
before that happens.

There are at least three useful historical
precedents:

First, beginning with the Tang Dynasty in China,
the use of private "bills of credit" etc.—
essentially paper I.O.U.s—issued by many sources. Second, the
use of "assignats" and then "mandats
" too during the last decade of the 18th Century in the
aftermath of the French Revolution. The third is a surprise.

In the follow-on to the Tang Dynasty, it became
all the fashion for groups and individuals to issue paper I.O.U.s and
for people to use them as money. The aggregate supply of these notes
became so large that, lacking product differentiation, by that pesky
law-of-supply-and demand, they lost all or nearly all value.

While usually underestimated until experienced,
such a disruption in the medium of exchange is more devastating to
more people than any hurricane or other natural disaster could ever
be.

For a current example, check out what's happening
in Venezuela right now (2017 A.D.)—

As a result of such things, the Chinese
eliminated paper money entirely in 1455.

In the French experience, the legislature,
despite experience with John Law's "Mississippi Bubble" 70
years earlier, put paper "assignats" into
circulation, supposedly based on and limited by the amount of land
committed to back them. The politicians couldn't control themselves
of course, and kept issuing more and more assignats, which
caused—supply-and-demand again—a drop in their value,
resulting in massive price inflation.

The French politicians then got the bright idea
of getting the "excess" assignats out of circulation
by issuing a substitute they called "mandats"
ass-u-me_ing they could get people to trade-in their assignats
for them. This was called an "interconvertiblility scheme,
" and, predictably, both asignats and mandats
stayed in circulation despite the schemes. The increased aggregate
supply meant that the value of both assignats and mandats
dropped and so the price inflation got worse.

And that was with only two similar
currencies circulating. How many crypto currencies are there? HINT: A
lot more than two. Keep reading.

If things go far enough with crypto currencies,
it will be necessary to remember that price inflation is usually
misdiagnosed and blamed on producers and sellers for raising their
prices. The correct diagnosis is: "Prices aren't going up,
the value of your money is going down."

And, as the French proved again, especially in
economics, mistaking the effect for the cause leads to really sick
and twisted prescriptions. In the French case for example, a one-way
trip to the guillotine for merely "having asked, before a
bargain was concluded, in what money [gold/silver vs. paper
assignats/mandats] payment was to be made."
[source]

No, I'm not making that up. If a French merchant
got caught asking whether you were going to pay in "specie
" (gold or silver) or rapidly depreciating paper (assignats
or mandats), by law it was literally "off with
his head."

The surprise example was the thirteen British
North American colonies before the First American Revolution. The
colonial governments got in the habit of issuing "Bills of
Credit"—essentially paper I.O.U.s remember—and
it became customary to use them as money.

Resonating with the Tang Dynasty, the
governments, not understanding the danger—or not worrying about
it—got in the habit of issuing more and more of these I.O.U.s
to cover expenses—and people got in the habit of using them as
money. Predictably this led to, you guessed it, "inflation."

This result became so disruptive that all
thirteen colonies, individually, came to realize how destructive
"emitting" Bills of Credit was and thus, even before
the Revolution, understood the dangers.

That experience was so memorable that preventions
found their way into the U.S. Constitution in Clause 1. Particularly,
"No State shall …emit Bills of Credit; make any Thing
but gold and silver Coin a Tender in Payment of Debts;"

Thus multiple crypto currencies—and the
"interconvertibility schemes"
already
in progress—will be, I think, the ultimate Achilles heel of
cryptocoins in general. Like assignats and mandats,
they may be different in name, but they can all be used,
interchangeably, as very similar media of exchange—which, by
the Law of Supply and Demand, will likely EVENTUALLY make them, in
aggregate, pretty much worthless.

Another short-coming of Bitcoin in particular is
that the total anonymity built into the block-chain algoritm wasn't
implemented for Bitcoin. This means they can be traced and so aren't
as anonymous as folks have been led to believe. Or even as anonymous
as paper money. That's why the FEDs were able to
bust
Silk Road. In fact, the FEDs can trace every individual Bitcoin
if they want to go to the trouble.

While the block-chain technology used by cryto
currencies is probably solid, there are outside-the-box dangers as
well. For example, Mt. Gox, billed at the time as the biggest Bitcoin
exchange,
filed
for bankruptcy protection in Japan: It apparently lost all of
it's patrons' Bitcoins to hackers.

You can also easily "misplace" your
bitcoins and/or lose the encryption key all by yourself. Gonzo crypto
advocate Max Kieser himself admits to losing an unknown number of
bitcoins for example. And apparently one absent-minded crypto
millionaire trashed a computer with his crypto wallet on the hard
drive. Now worth something like $20 million, he's considering a sort
of archaeological dig at the garbage dump.

SO, if you decide to get involved in the
cryptocoin trade, Kevin, do regular back-ups of your "wallet
" and think twice before trashing your device. And I'd suggest
one of the coins that DID implement total anonymity. That at least
gives it a little product differentiation. Probably, given the rapid
evolution of things, very little.

L. Reichard White
[send him mail] taught
physics, designed and built a house, ran for Nevada State Senate,
served two terms on the Libertarian National Committee, managed a
theater company, etc. For the next few decades, he supported his
writing habit by beating casinos at their own games. His hobby,
though, is explaining things he wishes someone had explained to him
. You can find a few of his other explanations listed
here.

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